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Franklin Financial Reports Q2 2018 Earnings; Declares Q3 Dividend

Company Release - 7/24/2018 2:57 PM ET

CHAMBERSBURG, Pa., July 24, 2018 /PRNewswire/ -- Franklin Financial Services Corporation, the bank holding company of F&M Trust (the Bank), reported a net loss of $5.2 million for the second quarter ended June 30, 2018, as compared to second quarter 2017 earnings of $3.3 million and first quarter 2018 earnings of $3.5 million. For the first six months of 2018, the Corporation reported a net loss of $1.7 million compared with net income of $6.4 million for the same period in 2017.

Results for both the second quarter and six months ended June 30, 2018 were affected by impairment charges on a loan participation that was initially reported in our current report on Form 8-K filed May 31, 2018. The participation represented the Bank's portion of loans and off-balance sheet items to a single, large commercial lending relationship with the lead bank. The impairment is believed to be a result of fraudulent activities perpetrated by one or more of the executives and personnel employed by the borrower.

During the second quarter, $8.7 million of the loan participation was charged-off resulting in an increase in the provision for loan loss expense to replenish the allowance for loan losses. In addition, a $2.4 million non-interest expense was recorded to establish a reserve for existing off-balance sheet commitments related to the loan participation. The charge-off and non-interest expense equates to $1.99 per diluted share for both the second quarter and six months ended June 30, 2018.

On a per share basis, diluted earnings were a net loss of -$1.18 for the quarter ended June 30, 2018 and -$0.38 for the first six months of 2018, compared to earnings of $0.77 and $1.46 for the same periods in 2017.

Compared to the second quarter of 2017, net interest income increased 8.0% to $10.1 million and the net interest margin increased to 3.75% from 3.72%. Noninterest income increased 2.1% and noninterest expense increased $3.0 million, of which $2.4 million was the previously mentioned off-balance sheet reserve. Year-over-year, noninterest income increased 4.7%, primarily as a result of an increase in fee income from Investment and Trust Services. Noninterest expense increased year over year by 23.1% and 8.4% excluding the $2.4 million reserve expense.

Total assets at June 30, 2018 were $1.2 billion, a 3.4% increase when compared with total assets at June 30, 2017. Net loans increased 7.3% to $954.8 million after accounting for the effect of the $8.7 million charge-off. Total deposits increased 5.0% to $1.1 billion for the second quarter of 2018 over the same period last year. Additionally, the market value of assets under management and held at third-party brokers increased 3.3% to $830.2 million ($695.9 million and $134.4 million, respectively).

"Our quarter and year-to-date earnings are obviously negatively impacted by the loss we sustained due to the fraudulent activity believed to be perpetuated by one or more executives and personnel employed by the borrower and its related entities," said Timothy G. Henry, President and CEO. "However, we are able to maintain our dividend, in fact increase it from the same period last year, because the Bank remains well capitalized after the loss and the underlying bank performance, across many performance metrics, continues to be strong."

On July 12, 2017, the Board of Directors of Franklin Financial Services Corporation declared a $0.27 per share regular cash dividend for the third quarter of 2018. This compares favorably to a $0.24 per share regular cash dividend for the third quarter of 2017, representing a 12.5% increase. Total cash dividends paid during the first three quarters of 2018 will be $0.78 per share compared to $0.69 per share in 2017, an increase of 13.0%. The regular quarterly cash dividend will be paid on August 22, 2018 to shareholders of record at the close of business on August 3, 2018.

Franklin Financial is the largest independent, locally owned and operated bank holding company headquartered in Franklin County with assets of more than $1 billion. Its wholly-owned subsidiary, F&M Trust, has twenty-two community banking offices located in Boiling Springs, Camp Hill, Carlisle, Chambersburg, Greencastle, Hustontown, McConnellsburg, Mechanicsburg, Mont Alto, Marion, Newville, Orbisonia, Shippensburg and Waynesboro. Franklin Financial stock is trading on the OTCQX® marketplace of the OTC Markets under the symbol FRAF. Please visit our website for more information, www.franklinfin.com.

Management considers subsequent events occurring after the balance sheet date for matters which may require adjustment to, or disclosure in, the consolidated financial statements.  The review period for subsequent events extends up to and including the filing date of a public company's consolidated financial statements when filed with the Securities and Exchange Commission ("SEC"). Accordingly, the financial information in this announcement is subject to change.

Certain statements appearing herein which are not historical in nature are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.  Such forward-looking statements refer to a future period or periods, reflecting management's current views as to likely future developments, and use words "may," "will," "expect," "believe," "estimate," "anticipate," or similar terms.  Because forward-looking statements involve certain risks, uncertainties and other factors over which Franklin Financial Services Corporation has no direct control, actual results could differ materially from those contemplated in such statements.  These factors include (but are not limited to) the following: general economic conditions, changes in interest rates, changes in the Corporation's cost of funds, changes in government monetary policy, changes in government regulation and taxation of financial institutions, changes in the rate of inflation, changes in technology, the intensification of competition within the Corporation's market area, and other similar factors.

 

FRANKLIN FINANCIAL SERVICES CORPORATION













Financial Highlights (Unaudited)
































Earnings Summary


For the Three Months Ended


For the Six Months Ended

(Dollars in thousands, except per share data)


6/30/2018


3/31/2018


12/31/2017


9/30/2017


6/30/2017


2018


2017


% Change

Interest income


$11,053


$10,488


$10,339


$10,063


$9,938


$21,541


$19,483


10.6%

Interest expense


954


795


691


629


590


1,749


1,171


49.4%

     Net interest income


10,099


9,693


9,648


9,434


9,348


19,792


18,312


8.1%

Provision for loan losses


9,129


200


250


250


50


9,329


170


5387.6%

Noninterest income


3,221


3,148


3,137


2,971


3,155


6,369


6,081


4.7%

Noninterest expense


11,188


8,648


18,750


8,305


8,161


19,837


16,118


23.1%

     (Loss) income before income taxes


(6,997)


3,993


(6,215)


3,850


4,292


(3,005)


8,105


-137.1%

Income taxes


(1,816)


491


1,048


774


950


(1,326)


1,743


-176.1%

Net (loss) income


($5,181)


$3,502


($7,263)


$3,076


$3,342


($1,679)


$6,362


-126.4%


















Diluted (loss) earnings per share


($1.18)


$0.80


($1.67)


$0.70


$0.77


($0.38)


$1.46


-126.0%

Regular cash dividends declared


$0.27


$0.24


$0.24


$0.24


$0.24


$0.51


$0.45


13.3%


















Balance Sheet Highlights (as of )


6/30/2018


3/31/2018


12/31/2017


9/30/2017


6/30/2017







Total assets


$1,173,576


$1,168,542


$1,179,813


$1,165,549


$1,134,655







Investment and equity securities


128,302


133,732


127,336


132,322


136,036







Loans, net


954,814


930,664


931,908


899,960


890,107







Deposits


1,057,680


1,034,461


1,047,181


1,033,148


1,007,378







Shareholders' equity


111,172


117,124


115,144


124,580


122,360
























Assets Under Management (fair value)

















Investment and Trust Services


695,860


684,648


686,941


662,733


652,862







Held at third party brokers


134,366


152,728


158,145


153,200


150,800


























As of or for the year-to-date period ended







Performance Ratios


6/30/2018


3/31/2018


12/31/2017


9/30/2017


6/30/2017







Return on average assets*


-0.29%


1.21%


0.19%


1.11%


1.13%







Return on average equity*


-2.89%


12.17%


1.80%


10.50%


10.75%







Book value, per share


$25.36


$26.83


$26.44


$28.66


$28.19







Market value, per share


$34.25


$36.54


$37.36


$35.05


$32.00







Market value/book value ratio


135.06%


136.19%


141.30%


122.30%


113.52%







Price/earnings multiple


N/A


11.42


74.72


12.13


10.88







Current dividend yield*


3.15%


2.63%


2.49%


2.74%


3.00%







Dividend payout ratio


-132.58%


29.84%


185.25%


31.66%


30.57%







Net interest margin


3.75%


3.72%


3.72%


3.71%


3.72%







Nonperforming loans / gross loans


0.59%


0.29%


0.28%


0.34%


0.35%







Nonperforming assets / total assets


0.72%


0.46%


0.45%


0.49%


0.55%







Allowance for loan loss / loans


1.29%


1.27%


1.25%


1.27%


1.25%







Net loans charged-off(recoveries)/average loans*


1.82%


0.00%


-0.01%


-0.01%


-0.01%
























* Annualized

















 

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SOURCE Franklin Financial Services Corporation